Method and apparatus for providing retirement income benefits

ABSTRACT

A computerized method and system for administering an unannuitized annuity plan having a guaranteed minimum withdrawal payment feature associated with a systematic withdrawal program includes the steps of and system for storing data, determining an amount of a maximum guaranteed withdrawal payment for a prescribed period (e.g., one year), periodically determining the account value, monitoring for an unscheduled withdrawal made under the plan and adjusting the amount of the maximum guaranteed withdrawal payment in response to the unscheduled withdrawal. Guaranteed withdrawal payments are periodically made to the account owner so long as withdrawals do not exceed the maximum guaranteed amount for the period, or the account value is greater than the payment.

RELATED APPLICATIONS

This is a continuation application of U.S. patent application Ser. No.13/922,865, filed on Jun. 20, 2013, which is a continuation applicationof U.S. patent application Ser. No. 13/479,875, filed on May 24, 2012,now issued U.S. Pat. No. 8,484,055, which is a continuation applicationof U.S. patent application Ser. No. 11/520,411 filed on Sep. 13, 2006,now issued U.S. Pat. No. 8,204,767 which is a divisional application ofU.S. patent application Ser. No. 09/804,667 filed Mar. 12, 2001, nowissued U.S. Pat. No. 7,376,608 which is a Continuation-in-Part of U.S.patent application Ser. No. 09/406,290 filed on Sep. 24, 1999, nowissued U.S. Pat. No. 7,089,201, (which is the subject of a Certificateof Re-examination issued on Dec. 7, 2010) which claims priority to U.S.Provisional Application Ser. No. 60/101,883 filed on Sep. 25, 1998; andSer. No. 60/115,570, filed on Jan. 12, 1999, the complete disclosures ofwhich are hereby expressly incorporated herein by this referencethereto.

FIELD OF THE INVENTION

The present invention relates to financial services and products. Moreparticularly, the present invention relates to a method and system foradministering retirement income benefits. The invention further relatesto a data processing method and system for the efficient administrationof variable annuity products, including provisions for guaranteesrelated to retirement income derived from and death benefits associatedwith variable annuities, in both the accumulation and distribution (orpayout) phases. The invention also relates to data processing andadministrative systems used to administer withdrawals from mutual funds,particularly systematic withdrawals from such funds.

BACKGROUND OF THE INVENTION

Annuities typically serve the useful function of providing economicprotection against the risk of longevity, in that an annuitant has theoption of electing a life-contingent retirement income, therebytransferring the risk of outliving one's accumulated assets to aninsurer.

A number of different kinds of annuities are available to meet thediverse needs of different individuals. These include deferred annuitiesand immediate annuities. In a deferred annuity, an individual istypically still in the “accumulation phase” of the annuity, amassingassets intended to sustain him or her during retirement years, when anearned wage from performing work is absent. In an immediate annuity, alump sum of money is applied to purchase a series of retirement incomebenefit payments, with the first payment typically being made about onemonth after purchase, with subsequent benefit payments arriving eachmonth thereafter.

The length of the term of the retirement income benefit payments isdetermined by the annuity benefit option elected by the annuitant. Onetype of annuity benefit option can provide lifetime income for theannuitant, regardless of how long he or she survives. Another typeprovides a similar benefit, but covers two lives, typically theannuitant and spouse.

Various types of additional guarantees can be attached to theselife-contingent annuity benefit options. These include an option thatguarantees the insurer will make at least a minimum number of monthlypayments, typically 120 or 240. Another type of option guarantees thatthe insurer will pay out in benefits at least as much value as wasapplied to purchase the annuity. Increasing the guarantees typically hasthe effect of reducing the amount of the annuity benefit payments.

Non-life-contingent annuity benefit options are also available. Forexample, an annuity benefit that makes monthly payments for a specifiedperiod of time, such as thirty years, and then terminates is available.

Another distinction of the type of annuities available is whether it isclassified as a “fixed annuity” or a “variable annuity.” In a fixedannuity, the insurer bears the investment risks. The insurer guaranteesa rate of interest applicable to each annuity deposit. The guaranteeapplies for a specified period of time, often one year, and is thenreset periodically, moving in an amount and a direction that correlateswith fixed-income investment yields available to the insurer in thecapital markets.

In a variable annuity, the annuity contract owner bears the investmentrisk during the accumulation phase of the annuity. The annuitant(s)bear(s) the investment risk during the distribution, or payout, phase ofthe variable annuity. The individual(s) (owner and/or annuitant, who canbe the same person) controlling the variable annuity typically have achoice of funds in which they can direct that annuity deposits beinvested. These funds typically each represent one asset class, such aslarge capitalization U.S. common stocks, corporate bonds, money marketinstruments, or international stocks.

In a fixed annuity, the account value during the accumulation phase canonly increase with time. In a variable annuity, the account value duringthe accumulation phase can either increase or decrease with time,depending on the performance of the fund(s) in which the annuitycontract owner has directed that deposits be invested. The hope andexpectation, but not guarantee, is that investments in the riskier assetclasses typically associated with a variable annuity will providelong-term accumulated values superior to those of a fixed annuity. Asannuities are geared toward providing retirement income, there typicallyis a long-term holding period. The table and graph of FIG. 1 illustrateannuity contract values as a function of time for both variable andfixed annuities. The fixed annuity contract of FIG. 1 illustrativelyearns 5% annually.

In a fixed annuity, the dollar amount of each annuity benefit paymentduring the distribution phase is known with certainty at the time theaccount value is applied to the purchase of an annuity benefit option.The point in time where the accumulated value of the deferred annuity isexchanged for a promise by the insurer of a series of future retirementincome benefit payments is termed “annuitization.” Fixed annuity benefitpayments are typically level forever, such as $1,000 per month, orincrease by a specified percentage, such as $1,000 per month, increasingby 3% each year. However, fixed annuity benefit payments are definitelydeterminable as to dollar amount at the point where the annuity contractowner elects the annuity benefit option from among his or her choices.

In a variable annuity, the dollar amount of each annuity benefit paymentduring the distribution phase is not known with certainty at the timethe account value is applied to the purchase of an annuity benefitoption. Rather, the annuitant(s) typically receive(s) the value of aspecified number of annuity units each month. For example, if theannuitant is entitled to the value of 500 annuity units per month andthe annuity unit value on the valuation date that determines theannuitant's benefit is $2.00, the annuitant receives an annuity benefitpayment of $1,000 that month. If, on the next succeeding valuation datethat determines the annuitant's benefit payment the annuity unit valueis $2.05, the annuitant receives an annuity benefit payment of $1,025that month. If the annuity unit value on the subsequent valuation dateis $1.95, the annuitant receives $975 that month.

In contrast to fixed annuity benefit payments, variable annuity benefitpayments are definitely determinable at the time of the annuity optionelection as to the number of annuity units that will determine theamount of the benefit payment on each future payment date. The variableannuity benefit payments are not definitely determinable as to dollaramount at the point where the annuity contract owner elects the annuitybenefit option from among his or her choices.

For variable annuities, “accumulation units” are the measure of valueduring the accumulation phase. Each specific fund or “subaccount”, suchas a domestic common stock fund, has an accumulation unit value thatincreases daily by realized and unrealized capital appreciation,dividends, and interest, and that decreases each day by realized andunrealized capital losses, taxes, and fees. The worth of a variableannuity contract owner's account is the number of accumulation unitsowned in each fund multiplied by the accumulation unit value of eachfund as of the most recent valuation date (typically daily).

For variable annuities, “annuity units” are the measure of value duringthe distribution phase. “Annuity units” work very much like accumulationunits, with one exception. Annuity units have built into them an“assumed interest rate (AIR)”—such as 3%, 4%, or 5%—at which a fund isassumed to grow annually in value. Thus, if a fund with a 5% AIRactually grew at 5% during a year, the annuity unit value for that fundwould remain unchanged. To the extent the fund performance exceeds 5%AIR, annuity unit value increases. To the extent fund performance fallsshort of 5% AIR, annuity unit value decreases. Since the monthly benefitpayment to the annuitant is the number of annuity units payable timesthe annuity unit value, fund performance in excess of the AIR causes themonthly annuity benefit payments to increase. Fund performance less thanthe AIR causes the monthly annuity benefit payments to decrease.

The table and graph of FIG. 2 illustrate the growth of accumulation unitvalue and annuity unit value, assuming a 9% gross investment return anda 5% AIR in the annuity unit value, for 15 contract years.

Variable annuity benefit options of sufficiently long duration havehistorically provided an inflation hedge to retirees superior to thatavailable under fixed annuities.

Annuitants may be apprehensive about electing a variable annuity benefitoption, even when it may be in their best long-term interest, due to thefact that the dollar amount of such benefit payments could theoreticallydecrease to zero. Because of this uncertainty relating to benefits undera variable annuity, there is clearly value with regard to the insurerproviding a minimum benefit. To date, these programs simply have theinsurer making up any differences between the actual minimum benefitpayment and the benefit payment the annuitant would have received in theabsence of such a program. There is no impact on future benefits. Such aguarantee is inherently expensive. What is described below are newfeatures for variable annuity products. What is also described areautomated methods and systems for implementing and administering suchproducts in a more efficient—that is, less expensive way. This costreduction efficiency may come, for example, by way of reducing futurebenefits whenever the insurer makes up a shortfall, as well as by othermeans described below.

While annuitization guarantees lifetime income, the contract holderloses liquidity (and, depending on the type of annuity, some or all ofthe death benefit implied by full liquidity). During the accumulationphase, the contract holder has full access to the account value. Afterannuitization, the contract holder cannot withdraw account value inexcess of that provided in monthly payments, and the death benefitavailable is either zero or limited in some way (e.g. paid only as acontinuation of payments throughout the certain period). Because of thisloss of liquidity and reduced (or non-existent) death benefit, manycontract holders wanting periodic income choose not to annuitize.Instead, they make systematic withdrawals from their annuity whilemaintaining it in its active, or accumulation, phase.

Systematic withdrawal programs from active, unannuitized deferredannuity contracts are an alternative mechanism (i.e., an alternative toannuitization) for distributing retirement income to contract holders.While these programs provide full liquidity, that liquidity requiressome tradeoffs. For example, if withdrawals are set at a specifieddollar level, then these distributions can fully deplete the accountvalue. In other words, the contract holder can outlive the retirementincome provided by this method of systematic withdrawal. Alternatively,if withdrawals are set as a percent of account value, then the period ofdistribution may be extended indefinitely, but a meaningful level ofmonthly retirement income may not be achieved. For example, if thepercentage chosen is too high, the bulk of the account value will bedistributed in the early years, leaving a much smaller account valuebase against which the same percentage will be applied, resulting ininconsequential monthly retirement income payments. Systematicwithdrawal programs may also be applied to mutual funds, which asidefrom differences in taxation and asset charges, are very similar to theaccumulation phase of variable annuities.

BRIEF SUMMARY OF THE INVENTION

One aspect of the present invention provides an annuity based retirementprogram which utilizes a variable annuity product with a guaranteedminimum payment. Unlike existing products, however, the product of thepresent invention is administered by a process in which deficits (i.e.,differences between the minimum payments and what would otherwise be theactual payments when actual payments fall below the minimums) are repaidfrom future payments. The chart of FIG. 3 illustrates this aspect of theinvention. FIG. 3 illustrates variable annuity payouts with a simplefloor guarantee and a program administered by a method that fundscurrent deficiencies (without interest) from future payments. Anotheraspect of the invention is the provision of alternative techniques(including a retrospective method and a prospective method) ofimplementing such a program.

Another aspect of the present invention relates to distributionsassociated with withdrawal programs, including systematic withdrawalprograms. More specifically, this aspect of the invention provides amethod for administering a systematic withdrawal program in which thedistribution program calls for a percentage withdrawal, the dollaramount of which is allowed to vary as the account value varies due towithdrawals, fees and expenses, and appreciation.

Another aspect of the present invention provides a combination ofbenefits superior to both annuitizations and systematic withdrawalprograms (whether from deferred annuities or from mutual funds) byjoining the two programs seamlessly so as to provide lifetime incomeannuities (or mutual fund programs) which maintain liquidity for thecontract holder for as many years as the contract holder chooses. Uponcommencement of the program, the contract holder may elect the number ofyears during which full liquidity is desired. For example, an owner age65 may elect to retain contract liquidity for twenty years. Using anassumed interest rate (AIR) and other factors, an initial payment willbe determined. The amount of this payment will change from period toperiod based on the same formula used in determining payment changesunder a typical variable immediate annuity, or annuitization under avariable deferred annuity. At the end of twenty years, if the contractholder wants payments to continue on this basis and be guaranteed forlife, then liquidity is given up and the account value is no longeravailable as a death benefit. The exchange of account value liquidityfor payments guaranteed for life may be optional at or before the end ofthe liquidity period. The liquidity period may be changed at any time,or the contract holder may also continue the withdrawal program on someother basis, or may elect to surrender the contract for its accountvalue. For mutual fund programs, the assets remaining in the mutual fundat the end of the liquidity period may, at the owner's option, betransferred to an immediate variable annuity to complete the program.

This aspect of the invention provides a type of systematic withdrawalprogram (which may be applied to either deferred annuities or to mutualfunds) that converts at the end of a stated period (the liquidityperiod) to an annuity. The annuity chosen is assumed here to be a lifeannuity, but other forms of annuities might also be made available.Essentially, the value remaining in the account at the end of theliquidity period is used to purchase a life annuity that continuespayments for the life of the annuitant. The program blends thewithdrawal program with this annuitization in a seamless way. Payments,first as withdrawals and later as annuity payments, are adjusted eachperiod to reflect actual net investment returns, in the same way thatvariable annuity payments are normally adjusted. Consequently, whilepayments under the life annuity portion of the program are guaranteedfor the life of the annuitant, the amount of each payment is notguaranteed. This invention involves a unique administrative system that,among other things, customizes the liquidity period and the level ofwithdrawal to the particular owner.

This aspect of the present invention differs in several ways fromvariable annuitizations that allow commutation of future payments, andwhich therefore provide some degree of “liquidity”. First, this programprimarily applies to the accumulation period of the deferred annuity anddoes not require actual annuitization. Second, commutation of futurepayments requires demonstration of good health. Third, commutation mayprovide for less surrender value than the present invention provides,due to additional loads or charges applied at the time of commutation.Fourth, during its liquidity period, the present invention utilizes a“retrospective” approach in determining contract value while commutationprograms utilize a prospective approach.

Since initial and subsequent payments are higher with shorter liquidityperiods, contract holders may decide for themselves the appropriatelength of the liquidity period. Some may elect very short periods, suchas five years. Others may elect very long periods, in effect maintainingcomplete access to their account values for the entirety of their lives.Even in the latter instance, contract holders enjoy advantages overconventional systematic withdrawal programs. In particular, the initialpayment anticipates returning some portion of principal over thecontract holder's expected lifetime (the remaining portion beingreturned at death), while still guaranteeing that payments will be maderegardless of how long the contract holder lives. Changes in paymentsfrom period to period are governed by the same formula as is used forlife annuities and resulting payments are guaranteed for life.

Certain embodiments of the present invention provide a data processingmethod and apparatus for the determination and administration of annuitypayments that derive from the seamless combination of systematicwithdrawals (from deferred annuities and/or mutual funds) andannuitization as indicated above and as will be described more fullybelow.

The invention described is intended primarily to apply to variableannuities and mutual funds. Nonetheless, the invention can also beapplied to fixed annuities.

Other goals, advantages and novel features of the present invention willbecome apparent from the following detailed description of the inventionwhen considered in conjunction with the accompanying drawings.

BRIEF DESCRIPTION OF THE DRAWINGS

FIG. 1 shows a table and graph illustrating annuity contract values as afunction of time for both variable and fixed annuities.

FIG. 2 shows a table and graph illustrating the growth of accumulationunit values and annuity unit values over a 15 year term.

FIG. 3 shows a chart illustrating variable annuity payouts with a simplefloor guarantee and a program that repays current deficiencies fromfuture payments in accordance with one aspect of the invention.

FIG. 4 shows a table comparing a normal variable annuity benefit underan annuity contract to the benefit payable under a contract whichincorporates a retrospective method of benefit determination, inaccordance with one aspect of the present invention.

FIG. 5 shows a table illustrating a reduction in units per payment undera program that guarantees a minimum payment and accounts for anyshortfall by reducing the number of units used to calculate futurebenefit payments, in accordance with one aspect of the presentinvention.

FIG. 6 shows a table illustrating the operation of a systematicwithdrawal program, in accordance with one aspect of the presentinvention.

FIG. 7 shows a graph illustrating variable payments made during andafter a liquidity period, in accordance with one aspect of the presentinvention.

FIG. 8 shows a graph illustrating the cash surrender value and deathbenefits in affect before and after annuitization for a program of thetype illustrated in FIG. 7.

FIG. 9 shows a flow chart illustrating the data collection and entrysteps of the computerized method of the present invention.

FIG. 10 illustrates a portion of a computerized method which utilizes aretrospective approach to annuity benefit calculation.

FIG. 11 shows a flow chart which is a continuation of the flow chart ofFIG. 10.

FIG. 12 shows a flow chart which illustrates a portion of a computerizedmethod which utilizes a prospective approach to annuity benefitcalculation.

FIG. 13 shows a flow chart which is a continuation of the flow chart ofFIG. 12.

FIG. 14 shows a flow chart illustrating a portion of a computerizedmethod for implementing a systematic withdrawal program.

FIG. 15 shows a flow chart which is a continuation of the flow chart ofFIG. 14.

FIG. 16 shows a flow chart illustrating a computerized method whichprovides for scheduled and unscheduled withdrawals in an investmentprogram, in accordance with one aspect of the present invention.

DETAILED DESCRIPTION OF THE INVENTION

The initial variable annuity benefit is determined under the terms ofthe variable annuity contract. Such terms state the factors forconverting each $1,000 of accumulated value into an initial amount ofvariable annuity income benefit. Variable annuity benefit paymentssubsequent to the initial payment are typically defined as follows:

Benefit_(t+1)=Benefit_(t)×1+i

1+AIR

where: Benefit_(t+1)=dollar amount of variable annuity benefit at timet+1

Benefit_(t)=dollar amount of variable annuity benefit at time t

i=actual fund performance during period t to t+1 (as a %)

AIR=assumed investment rate

For simplicity, this formula assumes annual variable annuity benefitpayments. For monthly payment frequency, the entire fraction appearingin the above formula is raised to the n/365 power, where n is the numberof days in the valuation period (typically 28≦n≦31) and the yearinvolved is a non-leap year.

As an example, if the benefit payment at time t is $1,000, the AIR is5%, and actual fund performance is 10%, the subsequent variable annuitybenefit payment is determined as follows:

${Benefit}_{t + 1} = {{Benefit}_{t} \times \underset{\_}{1 + i}}$${1 + {AIR}} = {{\$ 1}\text{,}000 \times \underset{\_}{1 + {.10}}}$1 + .05 = $1,047.62

An illustrative example of an annuity based program in which deficitsare funded from future benefits using a retrospective formula follows.This is merely one example of an approach the administration of which iscovered under this invention to handle guaranteed minimum variableincome benefits in other than the conventional manner.

Under this retrospective approach, the insurer establishes or calculatesa minimum benefit amount. The insurer tracks an “account value”(although the concept of an “account value” after the point ofannuitization has heretofore been eliminated, since annuity contractowners are told at the point of annuitization that they have irrevocablyexchanged their account value for a series of future annuity benefitpayments and, therefore, should no longer embrace the concept of an“account value” for which the contract may be surrendered). The “accountvalue” would be increased by appreciation and survivorship and decreasedby annuity benefit payments.

$\begin{matrix}{{{Account}\mspace{14mu} {Value}_{t + 1}} = {\left( {{{Account}\mspace{14mu} {Value}_{t}} - {Benefit}_{t}} \right) \times \left( {1 + i} \right) \times \left( {1/p_{y}} \right)}} \\{= {\left( {{{Account}\mspace{14mu} {Value}_{t}} - {Benefit}_{t}} \right) \times \left( {1 + i} \right)}} \\{{{+ {\left( {1 - p_{y}} \right)/p_{y}}} \times \left( {{{Account}\mspace{14mu} {Value}_{t}} - {Benefit}_{t}} \right) \times \left( {1 + i} \right)}} \\{= {{{Normal}\mspace{14mu} {Account}\mspace{14mu} {Value}\mspace{14mu} {Progression}} +}} \\{{{increment}\mspace{14mu} {for}\mspace{14mu} {survivorship}}}\end{matrix}$

where:

  Account  Value_(t + 1) = Account  value  at  time  t + 1  Account  Value_(t) = Account  value  at  time  t$\begin{matrix}{{Benefit}_{t} = {{dollar}\mspace{14mu} {amount}\mspace{14mu} {of}\mspace{14mu} {variable}\mspace{14mu} {annuity}\mspace{14mu} {benefit}\mspace{14mu} {at}\mspace{14mu} {time}\mspace{14mu} t}} \\{{= {{maximum}\mspace{14mu} \left\{ {{{Preliminary}\mspace{14mu} {benefit}},{{Guaranteed}\mspace{14mu} {minimum}\mspace{14mu} {benefit}}} \right\}}},}\end{matrix}$

where:

Preliminary Benefit_(t)=Account Value,

Attained age annuity factor

i=actual fund performance during period t to t+1 (as a %)

p_(y)=probability annuitant age y survives to age y+1

The “Normal Account Value Progression” is for an active (unannuitized)deferred annuity contract from which withdrawals, including those undera form of systematic withdrawal program, are being made.

Under this retrospective approach, the determination of the benefitpayment for each period differs from the typical approach previouslydescribed. The insurer guarantees that if the account value determinedby the progression of values in the series shown above goes to zero, theinsurer will commence making payments to the annuitant from its ownfunds.

The table of FIG. 4 compares the normal variable benefit typicallypayable under an annuity contract to the benefit payable under acontract which incorporates the retrospective method of this examplewhere the guaranteed minimum payment is equal to the initial payment.The total payments under the retrospective method exceed those under thenormal benefit. The insurer pays all amounts after the account value isexhausted.

Another illustrative example follows, using a prospective formula.Again, this is merely one example of an approach the administration ofwhich is covered under this invention to handle variable income benefitsin other than the conventional manner described earlier. In thisapproach, a guaranteed minimum variable income benefit is establishedbelow which the benefit payment will not fall. However, in the event thebenefit payment calculated without regard to the minimum falls below theminimum benefit payment guaranteed, a portion of the variable annuitybenefit reserve held by the insurer will be liquidated in an amountsufficient to cover the shortfall. This will result in reduced benefitsin the long term when performance of the funds might otherwise dictate alarger benefit payment.

As mentioned, the series of variable annuity benefit paymentstraditionally has a lower bound of zero. There are a variety of ways inwhich a positive, non-zero lower bound can be introduced. It will beassumed here that the lower bound will be a function of the initialvariable annuity benefit payment. In this example, the initial variableannuity benefit payment is $1,000 and all future variable annuitybenefit payments will be assumed to be no less than 100% of the initialbenefit.

In this example, whenever fund performance would cause a variableannuity benefit payment to be less than $1,000, a portion of thevariable annuity benefit reserve held by the insurer will be liquidatedin the exact amount to cover the shortfall.

Under this approach to a guaranteed floor under variable annuity benefitpayments, the following formula would govern the series of annuitybenefit payments:

${Benefit}_{t + 1} = {{Benefit}_{t} \times \underset{\_}{\mspace{14mu} {1 + i}\mspace{34mu}} \times \left( {1 - {S/R}} \right)}$1 + AIR

where: Benefit_(t+1)=dollar amount of variable annuity benefit at timet+1

Benefit_(t)=dollar amount of variable annuity benefit at time t

i=actual fund performance during period t to t+1 (as a %)

AIR=assumed investment rate

S=shortfall (below floor)

R=reserve prior to adjustment for shortfall

When a shortfall occurs, one method to implement the above approach isto reduce the number of annuity units payable on future benefit dates.The new, lower number of annuity units payable on future payment datesis that which can be funded by the new, lower reserve, That is, the newnumber of annuity units equals the reserve reduced by the shortfall,divided by an attained age annuity factor, and further divided by theannuity unit value.

This calculation will recognize the nature of the prospective payments.For example, if the original annuity benefit were a single life annuitywith ten annual payments guaranteed regardless of the survival ornon-survival of the annuitant, the first benefit payment occurring atthe point of annuitization, and the second annual benefit paymentfalling below the $1,000 guaranteed level, the number of annuity unitspayable on future payment dates would be that number able to be fundedby the reserve (adjusted by the shortfall) as applied to a single lifeannuity with eight annual payments guaranteed. The calculation would usethe annuitant's then-attained age and, in jurisdictions and/or marketswhere appropriate, the annuitant's gender.

Alternative, but similar, methods and systems to support them may beused to facilitate the same objective of providing a guaranteed floor ofperiodic annuity income. For example, annuity payments immediatelysubsequent to the one(s) creating a shortfall could be reduced—but notbelow the guaranteed floor level of payment—until the cumulativeshortfall had been made up. The present invention provides thecomputer-automated process to handle these variants.

The table of FIG. 5 shows the reduction in units per payment under aprogram that guarantees a minimum payment of $1,500 and accounts for anyshortfall by reducing the number of units used to calculate futurebenefit payments.

Other variations of the system and method of the present inventioninclude, but are not limited to, the following:

-   -   Non-level variable benefit floors—For example, a floor which        starts at $1,000 and increases by a fixed dollar amount (e.g.        $40) per year or by a fixed percentage (e.g. 4%) per year    -   Benefit floors in conjunction with benefit ceilings        (“collars”)—For example, benefit shortfalls that occur when an        annuity benefit would be below the floor level due to fund        performance serve to reduce all future annuity benefit payments        under the adjustment mechanism described above. With a benefit        ceiling, any annuity benefit payments above the ceiling (a)        would result in a benefit payment being made only at the ceiling        level and (b) would serve to increase all future annuity benefit        payments, such as by increasing the number of annuity units        payable on all future payment dates. The formula governing this        ceiling structure is identical to that shown above for the floor        structure. The only difference is that the excess benefit        payment above the ceiling is to be thought of as a negative        shortfall. Equivalently stated:

Benefit_(t+1)=Benefit_(t)×1+i×(1+X/R)

1+AIR

where:

Benefit_(t+1)=dollar amount of variable annuity benefit at time t+1

Benefit_(t)=dollar amount of variable annuity benefit at time t

i=actual fund performance during period t to t+1 (as a %)

AIR=assumed investment rate

X=excess (above ceiling)

R=reserve prior to adjustment for excess

Additional annuity units payable on future dates as a result of fundperformance causing the ceiling to be penetrated can partially restore,wholly restore, or more than restore any annuity unit decreases thatresulted from previous shortfalls due to fund performance causing thefloor to be penetrated.

-   -   Non-level variable benefit ceilings. For example, a ceiling        which starts at $1,200 and increases by a fixed dollar amount        (e.g. $40) per year or by a fixed percentage (e.g. 4%) per year.    -   Non-level variable benefit floors in conjunction with non-level        variable benefit ceilings. This allows for a variety of shapes        of corridors, whereby the slope of the floor and the slope of        the ceiling can run in parallel or non-parallel fashions over        time. (Consider time to be the x-axis variable and dollar amount        of the floor or ceiling to be the y-axis variable.)

In addition to distribution methods associated with true annuitizations,distributions associated with withdrawal programs—including systematicwithdrawal programs—from active (unannuitized) deferred annuitycontracts are also encompassed by this invention.

For example, for a given attained age(s) and, where allowed, gender(s),an insurer may permit withdrawals from an active (unannuitized) deferredannuity contract. Under such a program, if these withdrawals do notexceed a predetermined percentage established by the insurer for a givenwithdrawal frequency, the insurer guarantees that withdrawals under thisprogram will last for the period prescribed, including a lifetimeperiod.

As a hypothetical example, if a male age 60 withdraws 4.4% of theinitial account value each year, such withdrawals are guaranteed to lasta lifetime. (Initial account value is that account value at the time asystematic withdrawal program, inclusive of this guaranteed minimumbenefit payment option, commences.) There is an explicit increment tothe asset charge for those customers who opt to purchase this benefit.

This distribution program contrasts with those shown earlier in twomajor ways. First, the variable annuity contract is never “annuitized.”Rather, a series of partial withdrawals is made from an active(unannuitized) deferred variable annuity contract. This means that, upondeath of the contract owner, the account value is paid to thebeneficiary. This contrasts with distribution methods associated withtrue annuitizations, where the form of the annuity payout option chosendetermines whether any residual value remains for a secondary annuitantor beneficiary. For example, under a variable annuity contractannuitized under a single life annuity option with no certain period orother refund option, the insurer's obligation to the annuitant ceasesupon death. No further payments, “account value,” or any other form ofresidual value flows to the beneficiary.

Second, because the variable annuity contract is never annuitized underthis distribution program, a lump sum or partial account valuewithdrawal capability still resides with the variable deferred annuitycontract owner(s). However, withdrawals in excess of the amounts statedby the insurer to keep the guaranteed payout program in place may alteror may terminate the program.

One variant of this distribution program calls for the percentagewithdrawal allowed to be not just of the initial account value, butrather of the highest account value achieved on any policy anniversaryfollowing inception of the program, such account value necessarilyrecognizing all withdrawals and fees as well as appreciation.

For example, suppose a male age 60 may withdraw 4.4% of the initialaccount value each year under this program and be guaranteed a lifetimeincome of that amount. Suppose the initial account value at inception ofthis program is $100,000. The contract owner withdraws $4,400, themaximum permitted. Favorable fund performance causes the account valueto increase from $100,000-$4,400=$95,600 to $110,000 as of the contractowner's next policy anniversary when he has attained age 61. The accountvalue against which the 4.4% withdrawal applies is then re-establishedas the “high-water mark” account value on any policy anniversary. Thus,he may now withdraw up to 4.4% of $110,000, or $4,840, each year andhave the lifetime income guarantee program remain in place. If theaccount value subsequently decreases at all—even to zero—the $4,840 isguaranteed to be paid for life.

The table of FIG. 6 illustrates the operation of this aspect of theinvention. In the illustration of FIG. 6, the initial account value is$100,000, the withdrawal guarantee is 7.5% of the highest account valueattained, the investment return is assumed to be as illustrated, and theterm is 15 years.

In addition to guaranteed income for specified periods includinglifetime periods under systematic withdrawal programs, this inventionalso encompasses the integration of such income guarantees with deathbenefit guarantees. For example, such death benefit guarantees maypromise that the contract owner will have returned to him or her aspecified percentage (e.g., 0%-100%, inclusive) of either the initialaccount value or the “high-water mark” account value as of anysubsequent policy anniversary.

Under this approach, the initial withdrawal amount is adjusted in thesame way variable annuity benefit payments subsequent to the initialpayment are adjusted (see above), substituting “withdrawal” for“benefit” in the formulas. Such adjustment occurs during the liquidityperiod (chosen by the contract holder at the beginning of the program)and continues on into the life annuity period to adjust the variablepayments under that phase of the program also.

Since the first adjustments are made during the liquidity period, thedeferred annuity account value (or mutual fund account value) must bemaintained as usual for deferred annuities (or mutual funds), withspecial adaptation for additional deposits and for withdrawals in excessof the calculated withdrawal amount. Assuming no additional deposits andno excess withdrawals, the administration of the account value proceedsas follows:

Account Value_(t+1)=(Account Value_(t)−Withdrawal_(t))×(1+i)

-   -   where:    -   Account Value_(t+1)=Account value at time t+1    -   Account Value_(t)=Account value at time t    -   Withdrawal_(t)=dollar amount of variable withdrawal benefit at        time t=Withdrawal_(t−1)×1+i where AIR=assumed investment rate

1+AIR

i=actual fund performance during period t to t+1 (as a %)

This withdrawal program contrasts with normal annuitization in two ways.First, the annuitization of the contract (or, in the case of a mutualfund, purchase of the annuity) is postponed until the end of theliquidity period (which may be the end of the mortality table, if soelected). Rather, a series of partial withdrawals in amounts specifiedby the program is made from an active (unannuitized) deferred variableannuity contract (or mutual fund). This means that, upon death of thecontract owner during the liquidity period, the account value is paid tothe beneficiary. This contrasts with distribution methods associatedwith true annuitizations, where the form of the annuity payout optionchosen governs whether any residual value remains for a secondaryannuitant or beneficiary. For example, under a variable annuity contractannuitized under a single life annuity option with no certain period orother refund option, the insurer's obligation to the annuitant ceasesupon death. No further payments, “account value,” or any other form ofresidual value flows to the beneficiary. Even if the annuitizationoption includes a period certain (for example, life with a 10-yearperiod certain), and even though the death of the annuitant during thecertain period does not prevent the balance of the certain periodpayments from being made, no “account value” is available as a deathbenefit and no further benefits are paid after the certain period hasended.

Second, because the annuitization of the variable annuity contract (ormutual fund) is postponed, a lump sum or partial account valuewithdrawal capability still resides with the owner(s) during theliquidity period. Additionally, the contract holder may elect towithdraw less than the allowable withdrawal amount; payments under avariable annuity payout do not offer this flexibility.

Under this approach (which applies equally well to joint ownership as tosingle ownership), the contract holder chooses a period during whichsystematic withdrawals will be taken and during which full account valueliquidity is maintained. At the end of this period, the remainingaccount value is annuitized according to standard annuity payoutoptions. The insurance company determines the amount of the initialsystematic withdrawal, based on the length of the period chosen, the ageof the contract holder, and other factors. Using the assumed interestrate (AIR), the company calculates the initial withdrawal so that, ifthe AIR is realized over time, sufficient account value will be presentat the end of the systematic withdrawal period to fund theannuitization. FIG. 7 illustrates variable payments made during andafter the liquidity period in a program of this type. FIG. 8 illustratesthe cash surrender value and death benefits before and afterannuitization for a program of this type.

The amount of the initial withdrawal can be determined by at least twomethods (shown here on the assumption that annual payments are desired).The first method begins with calculating a special annuity factor equalto the present value (using the AIR) of an annual payment of $1.00during the chosen liquidity period, plus the present value (again usingthe AIR) of annual payments of $1.00 after the end of the liquidityperiod, such payments made according to the desired annuity option. Theinitial withdrawal is then calculated by dividing the available accountvalue (which would generally be net of surrender charges and net ofloans, if any) at the beginning of the program by the special annuityfactor described above. Subsequent withdrawals are adjusted up or downexactly as payments are adjusted under normal variable annuitization.

For example, assuming an n-year liquidity period and a life only annuityat the end of that period, the special annuity factor is calculated asfollows:

Special annuity factor=Σv ^(t+) Σv ^(t) _(t−n) p _(x+n)

where:

v=1/(1+AIR)

n=number of years in the liquidity period

Σv^(t)=the present value of payments from t=1 to t=n

-   -   Σvt_(t−n)p_(x+n)=the present value of payments from t=n+1 to the        end of the mortality table, where each payment depends on the        probability that the owner lives from duration n to duration t.

A second method for arriving at the initial withdrawal sets the specialannuity value equal to the value of an annuity certain for the chosenliquidity period, divided by (1−d), where d is the decimal equivalent ofthe percentage a payment under the annuity certain must be reduced toprovide enough unused principal (accumulated to the end of the liquidityperiod at the AIR) to provide for the chosen annuity at the end of theliquidity period.

For example, assuming an n-year liquidity period and a life only annuityat the end of that period, the special annuity factor is calculated asfollows:

Special annuity factor=Σv ^(t)/(1−d)

where:

$\begin{matrix}{{d = {{percentage}\mspace{14mu} {decrease}\mspace{14mu} {in}\mspace{14mu} {annuity}\mspace{14mu} {certain}\mspace{14mu} {payment}}},{{as}\mspace{14mu} a\mspace{14mu} {decimal}}} \\{= {a_{x + n}/\left\lbrack {{\sum{\left( {1 + i} \right)t}} + a_{x + n}} \right\rbrack}}\end{matrix}$  n + number  of  years  in  the  liquidity  period  ∑v^(t) = the  present  value  of  payments  from  t = 1  to  t = na_(x + n) = a  life  only  annuity  to  the  annuitant  at  the  end  of  the  liquidity  period∑(1 + i)^(t) = the  accumulating  of  payments  from  t = 1  to  t = n  at  the  AIR

Under either this method or the preceding method, the liquidity periodcan be extended to the end of the mortality table (for example, age115); in such case, if the owner lives until that age, a life annuity isstill guaranteed, but by that age the financial risk to the insurer isde minimis.

The contract holder may make additional deposits and may makewithdrawals in excess of the designated withdrawal amount, provided theend of the liquidity period has not yet been reached. In such instances,the withdrawal program must be adjusted. Adjustments are made byincreasing or decreasing the current withdrawal amount by the sameproportion as the amount of the new transaction (deposit or excesswithdrawal) bears to the account value just prior to the transaction.For example, if the current account value is $50,000 and the currentwithdrawal amount is $1,500, an additional deposit of $5,000 increasesthe account value by 10% and the withdrawal amount is thereforeincreased by 10%. In the same example, an unscheduled withdrawal of$5,000 (which is therefore an excess withdrawal of $5,000) reduces theaccount value by 10% and the current withdrawal amount reduces by 10%.In the adjustments, the investment return for the period from the mostrecent scheduled withdrawal to the date of the new transaction may bereflected in the adjustment.

This invention also encompasses the integration of this program withdeath benefit guarantees. For example, such death benefit guarantees maypromise that the contract owner will have returned to him or her aspecified percentage of either the initial deposit, the “high-watermark” account value as of any subsequent policy anniversary, depositsaccumulated at a specified interest rate or rates, or other definitionsof value.

One variation of the invention, applicable to deferred annuities only,would substitute for the liquidity period a death benefit period; thatis, the contract would have a period during which the contract holderwould not be allowed to access the account value for amounts in excessof the specified withdrawal amounts, but during which the account valueis paid at death. One advantage of this variation may be that theprogram may qualify for more favorable tax treatment. In particular, thewithdrawals made during the death benefit period may be taxed on thesame basis as are payments made under traditional annuitization.

Description of the Flow Charts

FIG. 9 is a flow chart which illustrates a portion of a computerizedmethod of practicing the present invention. More particularly, FIG. 9 isan illustrative embodiment of the steps which are taken to collect datawhich is used in the remainder of the process, as described in moredetail below. For a new annuity, the data collected through theindividual steps illustrated in FIG. 9 may be entered manually at acomputer terminal or equivalent input device, or electronically, or inany other manner which is customary at present or in the future. For anexisting annuity, the data will generally be retrieved from an existingcontract master record, or other file.

The process may be initiated (block 10) either manually at a workstation, or automatically in a batch cycle. In either case, a main menuis displayed (block 12) or provided, offering a number of possibleoperations. A choice may be entered by an operator or emulator (block14). The choice may be validated as indicated in FIG. 9 (block 16).

After a valid choice has been selected, the system determines whetherthe subject annuity is a new annuity or an existing annuity (block 18).For a new annuity, the process proceeds to display a new annuity inputscreen (block 20). This screen contains entry fields for items such as:information regarding the annuitant, owner and/or beneficiary;information regarding type of annuity chosen, including relevant datesand amounts; information on interest and mortality guarantees to be usedin the subsequent calculations; and other related information. This datais entered (block 22) and checked for validity and completeness (block24). If the data is valid and complete, a master record is created(block 26). The fields of the master record are populated with the dataentered in step 22. The new master record is then displayed (block 28)for visual checking by an operator. If the data is deemed to besatisfactory (block 30), the master record is stored in a master recordfile (block 32). If the data is not satisfactory, the process repeats asindicated in FIG. 9.

Referring again to step 18, if the system determines that an existingannuity is to be dealt with, processing proceeds to display the existingannuity input screen (block 34). This screen contains entry fields foritems such as: contract number; annuitant identification; and otheritems associated with the existing annuity contract. New data is entered(block 36) via the existing annuity input screen, and such new data ischecked to determine validity and completeness (block 38). The masterrecord associated with the existing annuity contract is retrieved (block40) and displayed (block 42) for viewing by an operator. If and when themaster record, as updated by the newly inputted data, is satisfactory,processing proceeds as indicated in FIG. 9.

FIG. 10 illustrates the next step in the overall process of the presentinvention. That step is calculation of an annuity benefit usinginformation from the master record, as created or updated in the processof FIG. 9 and other retrieved data. More particularly, the flow chartsof FIGS. 10 and 11 illustrate one embodiment of a computer-based processfor calculating an annuity benefit in accordance with retrospectiveapproach to benefit calculation.

The first step in the flow chart of FIG. 10 is to retrieve additionaldata relating to annuity factors (block 46), survivor factors (block 48)and annuity unit factors (block 50). These data are typically stored infiles used for other purposes, although duplicate or dedicated purposefiles may be created to hold such information for use in the calculationprocess. The process of FIG. 10 then checks to determine whether theparticular calculation at hand involves a new or existing annuity (block52). If the calculation involves a new annuity, processing proceeds bydeducting the premium load (if any) from the amount of money availablefor purchasing the annuity (block 54). Following this step, the minimumbenefit is determined. This calculation uses the net money available forpurchasing the annuity, the appropriate annuity factor for the age, sexand type of annuity, and the appropriate annuity unit value to determinethe minimum benefit. The minimum benefit may also be adjusted accordingto other terms of the contract (e.g., multiplied by 0.8, or otherfactor) (block 56).

For an existing annuity, the system calculates the investment return (i)for the recent period using annuity unit values (block 58). The resultsof step 58 are then used to update the account value (block 60).

Following step 56, in the case of new annuities, or step 60, in the caseof existing annuities, the system proceeds to calculate a preliminarybenefit (block 62). The preliminary benefit is calculated according tothe terms of the contract, in a manner similar to that used in thecalculation of the minimum benefit (step 56). After the first benefitpayment, each subsequent preliminary benefit is calculated by dividingthe account value by an attained age annuity factor that reflects theterms of the contract.

Following determination of the preliminary benefit, this benefit iscompared to the minimum benefit (block 64). If the preliminary benefitis less than the minimum benefit, then the “benefit” is set equal to theminimum benefit (block 66). If the preliminary benefit is greater thanthe minimum benefit, then the benefit is set equal to the preliminarybenefit (block 68).

Processing in accordance with the retrospective approach continues asillustrated by the flow chart of FIG. 11. Generally, the flow chart ofFIG. 11 illustrates the steps of using the benefit amount determined inthe process of FIG. 10 to update files and make adjustments needed forthe benefit calculations to be performed on the next benefit paymentdate. Also illustrated in FIG. 11 are steps relating to the generationof reports and updates for the benefit of both the annuity payer and theannuitant.

With reference to FIG. 11, the benefit determined in step 66 or 68 isused to reduce the Account Value by the amount of the benefit (block70). The system then checks to see if the Account Value is less thanzero (block 72). If so, the Account Value is then set to equal zero(block 74). In either event, the system then proceeds to update themaster record (block 76). All appropriate data and information enteredor affected by the processing to this point are captured on the masterrecord. This data would include such items as the amount of the benefitdetermined in step 66 or 68, the new account value or remaining units,payment date(s) of benefit(s), the next benefit due date, and similarinformation. Following the updating of the master record (and any otherrelated files), the system generates reports (block 78). Reports may begenerated for internal use, as well as for the annuitant. Representativeusages are illustrated in FIG. 11. These include: accounting file (block80) for use in preparing process and accounting records (block 82); avaluation file (block 84) for use in establishing reserves (block 86); apayment center file (block 88) for use in preparing benefit checks andreports to annuitants (block 90); a customer service file (block 92) foruse in preparing screens for the use of customer service personnel inresponding to inquiries from annuitants and related entities; and otherfiles (block 96) for use in any other activities (block 98) which mightbe useful to the annuity payer or annuitant.

FIGS. 12 and 13 illustrate one embodiment of a computerized processwhich utilizes a prospective approach to determining benefit paymentsunder a variable annuity contract. As indicated by the connecting letter“A” at the top of FIG. 12, the data collection process illustrated inFIG. 9 is applicable to, and precedes, the process of FIG. 12. Followingcollection and storage of the data per FIG. 9, the system retrievesadditional data, as indicated by blocks 100 and 102 and FIG. 12. Theadditional data includes annuity factors and annuity unit values whichare typically stored in files used for other purposes, and which areuseful in the calculations to follow. The system then determines whetherthe particular annuity of interest is a new or existing annuity (block104).

If the annuity is a new annuity, the process proceeds by deducting thepremium load (if any) from the amount of money available for purchasingthe annuity (block 106). Following this step, a minimum benefit iscalculated (block 108). Determination of a minimum benefit in step 108is substantially similar to determination of a minimum benefit in step56 of FIG. 10. In the case of an existing annuity, processing proceedsfrom step 104 to calculation of an investment return (i) (block 110).The investment return calculated is for the most recent past periodusing annuity unit values retrieved in step 102.

In either event (i.e., with either a new or existing annuity), theprocess determines a preliminary benefit (block 112) in a manner whichis substantially similar to determination of a preliminary benefit instep 62 of FIG. 10. Moreover, comparison of the preliminary benefit tothe minimum benefit (where appropriate), and setting the “benefit” equalto the greater of the preliminary and minimum benefits (blocks 114, 116,and 118) proceeds in the process illustrated by FIG. 12 substantiallysimilarly to the process of steps 64, 66, and 68 of FIG. 10.

As indicated by connecting letter “C,” processing continues asillustrated in FIG. 13. The first step in this continued processing isto determine whether the benefit set in steps 116 or 118 is greater thanthe preliminary benefit determined in step 112 (block 120). If so, theprocess proceeds to calculate the excess of the benefit over thepreliminary benefit (block 122). The process then proceeds to reduce thenumber of annuity units to be used in the determination of futurebenefits (i.e., calculate the number of units payable in futurebenefits). As described in additional detail elsewhere in thisspecification, the reduction of the number of units is calculated (block124) using the amount of the excess benefit, the current annuity unitvalues, and the attained age annuity factors. Following this step, theprocess checks to see if the number of units to be used in calculatingfuture benefits is less than zero (block 126). If so, the system setsthe number of units equal to zero (block 128). In either event, thesystem updates the master record (block 130) to reflect the reduction orresetting of annuity units. As indicated by the flow chart of FIG. 13,if the benefit determined by the process of FIG. 12 is not greater thanthe preliminary benefit, the system proceeds directly to step 130 (i.e.,the number of annuity benefits is not reduced).

Following step 130, the system generates reports (block 132). Thisportion of the process is substantially similar to the portion of theprocess described in connection with steps 78-98 of FIG. 11, and thedescription of these steps will not be repeated here.

FIG. 14 is a flow chart which illustrates a computer-based process foradministering an annuity contract which utilizes a systematic withdrawalapproach. As indicated by the presence of the connecting letter “A” atthe top of the flow chart of FIG. 14, the initial steps of collectingand storing information relating to the annuity described previously inconnection with FIG. 9 may be used in the embodiment of FIG. 14.Following these steps, and with reference to FIG. 14, the system firstretrieves additional information relating to accumulation unit values(block 134) and withdrawal factors (block 136). These values aretypically stored in files which may also be used for other purposes. Thesystem first checks to see whether the subject annuity is a new orexisting annuity (block 138). If new, the system proceeds to determine aminimum withdrawal amount, based upon the Account Value and withdrawalfactor (block 140). If the subject annuity is an existing annuity, thesystem calculates the investment return, (i), for the most recent period(block 142), updates the Account Value (block 144) using the results ofthe calculation of step 142 and checks to see if the new Account Valueis greater than the prior Account Value (block 146). If so, the processproceeds to step 140 to determine the minimum withdrawal benefit. Ifnot, the system omits this step.

As indicated by the connecting letter “D,” the process proceeds inaccordance with the embodiment illustrated by the flow chart of FIG. 15.In general, this portion of the process makes adjustments, whenappropriate, to allow benefit calculations to be made by or on the nextbenefit payment date.

With reference to FIG. 15, the system first checks to see if the AccountValue is greater than the withdrawal benefit (block 148). If so, theAccount Value is reduced by the amount of the withdrawal benefit (block150). If not, the Account Value is set equal to zero (block 152).Following either adjustment, the system proceeds to update the masterrecord (block 154). As with the retrospective and prospectiveapproaches, items updated in the master record include withdrawalbenefit amount, new Account Value or remaining units, dates of payments,upcoming due dates, etc. Following updating of the master record, thesystem generates reports (block 156). Generation and handling of reportsproceeds in substantially similar fashion to that described previouslyin connection with steps 78-98 of FIG. 11. Accordingly, that descriptionwill not be repeated here. In either case, the process of generatingreports includes the step of updating any and all files relating to thesubject benefit/withdrawal payment.

FIG. 16 illustrates an alternative embodiment of an annuity-basedretirement program constructed in accordance with the present invention.As indicated by the continuation letter “A” at the top of the flow chartof FIG. 16, this embodiment shares the data collection steps illustratedin FIG. 9 in common with the preceding embodiments. Similar informationregarding the annuitant and account is collected in accordance with thesteps described in connection with FIG. 9. Additional informationspecific to the present embodiment, such as length of the liquidityperiod, is also entered in accordance with the steps described inconnection with FIG. 9.

With reference to FIG. 16, the process continues by retrievingadditional data (block 158), such as annuity unit values, annuityfactors, and survivor factors. These values are typically stored infiles which may be used for other purposes, as well.

Following the data retrieval step, the system determines whether aparticular withdrawal is a scheduled withdrawal (block 160). If yes, thesystem then checks to determine if the withdrawal program is a newprogram (block 162). If yes, the system proceeds to calculate theinitial withdrawal amount (block 164) based upon the data inputted forthe new account. If the account is not a new program, the systemcalculates the actual net investment return, i, (block 166). The systemthen calculates the new withdrawal amount (block 168), using the actualnet investment return and the AIR.

If the subject withdrawal is not a scheduled withdrawal, the systemchecks to determine whether the withdrawal is a premium payment ordeposit (i.e., is a negative withdrawal) (block 170). If yes, the systemcalculates the current account value (block 172), calculates theincrease factor (block 174) using the formulas described below, andincreases the scheduled withdrawal amounts to be used in futurecalculations (block 176).

If the subject event is not a scheduled withdrawal and is not a premiumpayment or deposit, the system checks to confirm that it is anunscheduled withdrawal (block 178). If the system indicates that this isnot the case, an error message is produced (block 180) and the processhalts. If the system confirms that the event is an unscheduledwithdrawal, processing proceeds with calculation of the current accountvalue (block 182), calculation of the decrease factor (block 184), asdescribed previously, and decrease of the scheduled withdrawal amount tobe used in the future (block 186).

As indicated in the flow chart of FIG. 16, after completion of theappropriate steps described above, the system converts the transactionamount (i.e., the amount of the scheduled withdrawal, premium payment,deposit, or unscheduled withdrawal) into an equivalent number of units,using the current unit value (block 188). The system then adjusts thenumber of units in the account (block 190). The master records is thenupdated (block 192). As indicated by the connecting letter “E”, thesystem then updates the files and generates reports in the same manneras described in connection with the previously discussed embodiments ofthe invention.

From the preceding description of the preferred embodiments, it isevident that the objectives of the invention are attained. Although theinvention has been described and illustrated in detail, it is to beclearly understood that the same is intended by way of illustration andexample only and is not to be taken by way of limitation. The spirit andscope of the invention are to be limited only by the terms of theappended claims.

What is claimed is:
 1. A computerized method for administering anunannuitized variable annuity plan having a guaranteed minimum paymentfeature associated with a systematic withdrawal program, and forperiodically determining an amount of a scheduled payment to be made byan administrator of the plan to an owner under the plan, the methodcomprising: a) using a computer, storing data relating to a variableannuity account of the owner, including data relating to an accountvalue of the account of the owner, a withdrawal rate, and a period ofbenefit payments; b) using the computer, determining an amount of thescheduled payment; c) using the computer, periodically determining theaccount value associated with the plan and making the scheduled paymentto the owner from funds in the account of the owner; d) using thecomputer, monitoring for an unscheduled withdrawal from the account ofthe owner made under the plan and adjusting the amount of the scheduledpayment in response to said unscheduled withdrawal; and e) periodicallypaying the scheduled payment to the owner for the period of benefitpayments, even if the account value is insufficient to make thescheduled payment, wherein scheduled payments made after the accountvalue is insufficient are made from funds in an account of theadministrator, and can be made without the aid of the computer.
 2. Themethod of claim 1, wherein the amount of the scheduled withdrawalpayment is determined by the following formula:Scheduled Payment=Account Value_(o)×WD Rate Where: ScheduledPayment=dollar amount of the scheduled payment Account Value_(o)=initialaccount value or account value as periodically determined at asubsequent time WD Rate=predetermined % rate established as part of theannuity plan.
 3. The method of claim 1, wherein the account value isperiodically determined by the following formula:Account Value_(t+1)=Max[(Account Value_(t)−Withdrawal),0]×(1+i) Where:Account Value_(t+i)=account value at time t+1 Account Value_(r)=accountvalue at time t Withdrawal=dollar amount of the scheduled payment attime t i=net fund performance during period t to t+1.
 4. The method ofclaim 1, wherein the scheduled payment is adjusted in response to anunscheduled withdrawal from the account of the owner according to thefollowing formula:Scheduled Payment′=Scheduled Payment×(1−USWithdrawal_(t)/AccountValue_(t)) Where: Scheduled Payment′=scheduled payment after anadjustment for an unscheduled withdrawal Scheduled Payment=scheduledpayment prior to an adjustment for an unscheduled withdrawalUSWithdrawal_(t)=unscheduled withdrawal made at time t AccountValue_(t)=account value at time t, prior to the unscheduled withdrawalfrom the account of the owner.
 5. The method of claim 1, furthercomprising creating a master record for the variable annuity account ofthe owner, and wherein the storing steps include storing data on themaster record.
 6. The method of claim 5, wherein creating a masterrecord comprises: providing an input screen having fields for entry ofdata relating to the owner, the type of annuity plan, relevant dates andamounts, and data relating to interest and mortality guarantees;entering data in the fields; and checking the data for validity andcompleteness.
 7. The method of claim 6, further comprising displayingthe master record for visual checking by an operator, and storing themaster record if the data is deemed to be satisfactory.
 8. The method ofclaim 1, further comprising generating a report, and forwarding thereport to the owner.
 9. The method of claim 1, further comprising:generating at least one report, and storing data in at least one of anaccounting file for use in preparing process and accounting records, avaluation file for use in establishing reserves, a payment center filefor use in preparing benefit checks and reports for the owner, and acustomer service file for use in preparing screens for use by customerservice personnel.
 10. The method of claim 1, wherein the period ofbenefit payments is a lifetime period.
 11. A computerized method foradministering an unannuitized variable annuity plan having a guaranteedminimum payment feature associated with a systematic withdrawal program,and for periodically determining amounts of scheduled payments to bemade by an administrator of the plan to an owner under the plan, themethod comprising: a) using a computer: 1) storing data relating to avariable annuity account of the owner, including data relating to anaccount value of the account of the owner, a withdrawal rate, and aperiod of benefit payments; 2) determining an amount of the scheduledpayments; 3) periodically determining the account value associated withthe plan and making a scheduled payment to the owner from funds in theaccount of the owner; 4) monitoring for an unscheduled withdrawal fromthe account of the owner made under the plan and adjusting the amount ofthe scheduled payments in response to said unscheduled withdrawal; and5) periodically comparing the account value of the account of the ownerto the amount of the scheduled payments to the owner and determiningwhether the funds in the account of the owner are insufficient to makethe scheduled payments; and b) if the funds in the account of the ownerare insufficient to make the scheduled payments to the owner, settingthe account value to zero and making the scheduled payments to the ownerfrom funds in an account of the administrator, with or without the aidof the computer, for the period of benefit payments.
 12. The computermethod of claim 11, wherein the period of benefit payments is a lifetimeperiod.
 13. A computerized method for administering an unannuitizedvariable annuity plan having a guaranteed minimum payment featureassociated with a systematic withdrawal program, and for periodicallydetermining amounts of scheduled payments to be made by an administratorof the plan to an owner under the plan, the method comprising: a) usinga computer: 1) storing data relating to a variable annuity account ofthe owner, including data relating to an account value of the account ofthe owner, a withdrawal rate, and a period of benefit payments; 2)determining an amount of the scheduled payments; 3) periodicallydetermining the account value associated with the plan and making ascheduled payment to the owner from funds in the account of the owner;4) monitoring for an unscheduled withdrawal from the account of theowner made under the plan and adjusting the amount of the scheduledpayments in response to said unscheduled withdrawal; and 5) periodicallycomparing the account value of the account of the owner to the amount ofthe scheduled payments to the owner and determining whether the funds inthe account of the owner are insufficient to make the scheduledpayments; and b) if the funds in the account of the owner areinsufficient to make the scheduled payments, continuing to make thescheduled payments to the owner from funds in an account of theadministrator, with or without the aid of the computer, for the periodof benefit payments.
 14. The computer method of claim 13, wherein theperiod of benefit payments is a lifetime period.
 15. A computerizedmethod for administering an unannuitized variable annuity plan having aguaranteed minimum payment feature associated with a systematicwithdrawal program, and for periodically determining an amount of ascheduled payment to be made to the owner under the plan, comprising thesteps of: a) using a computer, storing data relating to a variableannuity account, including data relating to an account value, awithdrawal rate, and a period of benefit payments; b) using thecomputer, determining an amount of the scheduled payment; c) using thecomputer, periodically determining the account value associated with theplan and making the scheduled payment by withdrawing that amount fromthe account value; d) using the computer, monitoring for an unscheduledwithdrawal made under the plan and adjusting the amount of the scheduledpayment in response to said unscheduled withdrawal; and e) periodicallypaying the scheduled payment to the owner for the period of benefitpayments, even if the account value is below the amount of the scheduledpayment before all payments have been made, wherein scheduled paymentsmade after the account value is below the amount of the scheduledpayment can be made without the aid of the computer.